Borrowers are being advised against paying companies that claim to be able to wipe out their debts, as the Ministry of Justice (MoJ) announced yesterday that it has shut down 100 of these firms.

orrowers are being advised against paying companies that claim to be able to wipe out their debts, as the Ministry of Justice (MoJ) announced yesterday that it has shut down 100 of these firms.

These claims management companies cold-call consumers offering to help clear their debts, for a percentage fee. But what they fail to mention is that they have been subject to warnings from several watchdogs, including the Office of Fair Trading (OFT), which is concerned that their claims are misleading.

"Misleading claims that debt can be written off as unenforceable, and high-pressure selling and cold-calling in person will not be tolerated," says Kevin Rousell, head of claims management regulation at the MoJ.

The firms argue that they can challenge the legality of many credit contracts drawn up before April 2007, saying that these are flawed.

"They are referring to the consumer credit legislation - which applied before the Consumer Credit Act 1974 was amended in April 2007 - setting out various key compulsory requirements for lenders, such as that the interest rate has to be stated clearly," says Rousell.

"There are instances where some consumer credit agreements may be unenforceable, but it isn't as simple as people may think. We're working with the OFT to ensure that the firms offering ways out of debt are not misleading people."

Handing over your debt liability to a firm for a typical fee of 10% is highly unlikely to discharge you from your repayment obligations. The OFT says that the law simply does not allow debt to be wiped without the express permission of the lender, and warns that any firm suggesting otherwise through a legal loophole is making "clearly misleading claims".

Even so, these alluring promises have led readers to contact Cash to ask about their validity, and internet forums are rife with confusion.

Secretary Hannah Smith, 30, has received several calls from claims management companies over the last few weeks. "I don't know how they got my number, but their offer to wipe out my credit card debt for a 10% fee is enticing," she says.

"If it's true, then great. But it can't be as simple as that - though they say they're authorised by the Ministry of Justice, which makes it sound valid."

The MoJ is the claims management regulator in England and Wales, and Rousell says: "Authorisation is a legal requirement and claims companies must follow rules of conduct. Businesses must provide consumers with clear information about the options available for pursuing their claim, the realistic chances of success and the expected costs, before fees are charged or a contract signed."

Anyone being hassled by cold-calling claims management firms, or who is concerned about the way they are operating, should go to claimsregulation.gov.uk for more information and to report the companies concerned.

A spokeswoman for Citizens Advice says: "Where people have several debts, the fees can quickly mount up to several thousands of pounds and people may then be sold a 'no win, no fee' agreement to take legal action that can cost them even more."

You can, instead, turn to Citizens Advice or National Debtline to check whether or not there are genuine grounds for challenging credit agreements.

Beccy Boden Wilks of National Debtline adds that it is "rare" for a credit agreement to be unenforceable, and says "consumers must be very careful, as they are not easily contestable".